I saw a house that is For-Sale-By-Owner. Can my Realtor® help me with that?

Understanding the Real Estate Process from A – Z – A Buyer’s Guide to Real Estate – Part 10

This is the tenth post of a series in an FAQ format that I hope will help would be buyers better understand the real estate process that they are about to go through. There is a follow-on series to the posts for real estate sellers.

FAQ – I saw a house that is For-Sale-By-Owner (FSBO). Can my Realtor help me with that?

He/she sure can. In fact, it may be more important than ever to have your Realtor involved. Since the Seller has no Realtor representation, it is imperative that one of the two parties have someone involved who thoroughly understands the real estate process and make sure that things are done properly. That is not to say that the Seller doesn’t know what he’s doing. He may be quite knowledgeable and may have sold many houses in the past; however, the real estate process changes over time as new laws are enacted and new requirements must be met. Realtors are required to keep up with those changes, while someone who last sold a house 5-10 years ago might not be aware of the changes.  In addition, remember that the Realtor has assumed a fiduciary role with you in the sale and puts your best interest first. The seller may be a very honest person, but they are not putting your best interests first.

So, how can/will your Realtor help with a FSBO sale? For one he/she can do a little research on the place, so that you may be aware what the current owner paid for the place, what the taxes are and if there are any special assessments or association fees. He/she can also act as a go-between with the Seller to arrange the showing. Your Realtor will determine at that time if the Seller is willing to pay a commission on a sale or whether you might be on the hook for that, if you signed an Agency Agreement with the Realtor.

Your Realtor can also negotiate on your behalf with the Seller. Most Buyers are not comfortable

trying to negotiate directly with the Seller, especially if he has an attitude about the real restate process. The Realtor will also prepare the necessary real estate sale contract documents to make the offer official and will involve a title company when appropriate. For the most part, your Realtor may be able to make a FSBO sale look and feel to you much like a normal sale of an MLS-listed property; however, there may be much more going on in the background.

Follow-up FAQ – What are some things that I should be aware of or concerned about with a FSBO sale?

Much of the activity that goes on after an offer is accepted will be the same as the sale of an MLS-listed house and your Realtor can probably work with the Seller to smooth over any rough spots. Some of the differences may be found in the work that the Seller (or his missing agent) did (or didn’t do) on the front end. Since the Seller didn’t have a Realtor involved there was probably no preliminary title search work done, so there could be title surprises when the title work that is kicked off by the accepted offer is done.

The seller may also be unaware of any local governmental rules or regulation on sales and any requirements for city inspections and the issuance of a new certificate of occupancy for the new owner. The Seller also may not have bothered to do the Due Diligence work at the County/Township/City/ Village level to see if there are any outstanding assessments or liens against

the property. He/she may not have had the proper forms (or just decided not to do this requirement) to fill out to do the Sellers’ Disclosure and the Lead-based Paint Disclosure. Those are both required by Michigan real estate law and the sale cannot proceed without them. Any flyer that the Seller might have created must also be looked at with a grain of salt, since he might have been unaware of the real estate rules that govern what can and cannot be said about a property.

Perhaps the biggest concern is that the Seller may have overpriced the property. Without any advice from a Realtor, many FSBO sellers overprice their homes by as much and 10-15%, sometimes more. If they set their jaw at that price, negotiating a reasonable sale price may be impossible. Without professional help, many use the advice from friends and relatives or knowledge (real or imagined) of neighborhood sales, even if they’ve never been in the homes that have sold in their neighborhood. A Realtor would have been able to do a Comparative Market Analysis of their home and would have provided pricing advice for it relative to other sales. But, they didn’t use a Realtor.

Most times a FSBO Seller is just trying to save some money on the sale by not paying a commission to a listing agent; however, a few have had bad experiences in the past with a real estate agent and now don’t trust anyone in the real estate business and don’t want to follow the proper real estate procedures and laws.  Those latter Sellers can be difficult to deal with and can make the home buying experience very uncomfortable for the Buyer and his Realtor. A good Realtor will know how to handle that scenario.

Your Realtor will also take the time to go over the terms and conditions of the Purchase Agreement

(PA) with the Seller, since he has no one else to do that with him. Sellers with an attitude about the real estate industry may try to ignore, or get around, some of the provisions of the PA or the title policy requirements and closing processes. A good Realtor will make sure that everything that is required is done and that the T’s & C’s that are in the PA to protect your interests are not ignored by the FSBO Seller.

If the Seller has decided to use his own title company, your agent will act as the coordination point between them and your title company or work with that title company to make sure that your interests are taken into account. Your agent will also negotiate any issues or repair requests that come out of the home inspection, which can be another sore point for the FSBO seller. Your Realtor will try to keep everything on track and on schedule to meet the various deadlines that are in the PA and make sure that the closing takes place on the agreed upon date.

In the end, you will still be able to buy that house from the FSBO Seller. The process may not be as pleasant or as well organized as might be with a listed and represented seller; however, your Realtor will try to make the process as painless as possible. Just be glad that at least one of you had a professional who knew what he/she was doing during the process. The real estate process is not rocket science; but, there are enough potential things that could go wrong along the way that having an experienced guide – your Realtor – makes all the difference in the world. 

Why do I need a Realtor? I could sell my house myself.

Part 1 in a series of 12 posts for the would-be home seller.

Answer. Of course you could sell it yourself. The real question should be, “What value does a Realtor bring to the sales process that justifies the commission that I would have to pay?” The answer to that is that the Realtor brings the marketing knowledge and tools of his/her trade to bear on the marketing and sales process to facilitate making the sale faster and at a higher value than the typical “For Sale By Owner” (FSBO) sale.   

We collect a lot of statistics about this and can show that only 10% of unrepresented seller attempts end up with a sale. About 10% of the unrepresented seller attempts end up with the house being taken off the market and the sale abandoned. The remaining 80% of unrepresented sellers end up hiring a real estate professional for completion. According to National Association of Realtors statistics, sellers who are represented by a real estate professional get 16% more for their homes that sellers who go FSBO. A part of that is due to the unrepresented seller’s tendency to overprice in the first place, whereas the real estate professional works very hard at the front-end of the process to get the property properly market priced.

Secondly, there is the issue of advertising. A house won’t sell if no one knows it is for sale. Having a homemade For Sale By Owner sign on the lawn is only a start (and a weak one at that).  A Realtor may spend anywhere from 6-10% of his/.her expected commission on advertising in newspapers and real estate books, in addition to the cost of placing the listing in the MLS and the cost of having a professional sign placed on the property. Additional costs may be incurred for placing the listing on certain Web sites and for other techniques that the agent may use to increase exposure for the property. In addition, most larger companies now have mobile apps that can be used to find your property, if it is listed. More and more buyers are “going mobile” these days and you might end up being invisible in that world as a FSBO.           

Third there is the need to deal with potential buyers. Buyers and their agents need to talk to someone to set up appointments and are likely to call at all hours. A Realtor will have an office that people can call for these appointment 7 days a week. A Realtor will also try to pre-screen potential buyers and only set appointments for those that he/she feels are valid buyers for the property. Stick a FSBO sign in your front yard and you invite the whole world to walk through your house.      

The last issue is one of time – time that the agent would spend sitting in open houses, so you don’t have to and the time that you’ll lose on the sale just due to it being a unrepresented sale. Without the benefit of the exposure that the Realtor will provide for the house, through the Multi-List Service and his/her advertising and marketing efforts, the unrepresented house is likely to stay on the market quite a bit longer than a listed house. Statistics tell us that an unrepresented seller’s house can stay on the market almost twice the average for a listed property in the same area. Remember that you’re making payments during that extra time and very little of that money flows to your equity bottom-line.

Then there is the fact that most unrepresented sellers will get calls from agents offering to show their house to

prospective buyers, if the seller is “Co-operating with brokers”, which means that you give them a 3% commission on the sale (the same 3% they would have gotten had the house been listed). While many unrepresented sellers will initially reject those inquiries, most eventually give in; just to get some activity through the house and poof, there goes half your expected savings anyway.

So, if you’ve got all the time in the world and don’t really don’t care if you get top dollar - go for it. Here are some other readings on this topic –

http://homebuying.about.com/od/realestateagents/a/110408_UseAgent.htm

http://home.howstuffworks.com/real-estate/house-selling1.htm

http://www.washingtonpost.com/blogs/wonkblog/wp/2013/08/22/why-do-real-estate-agents-still-exist/

http://www.realtor.com/basics/sell/why/fsbo.asp